Rev. Rul. 57-303

Advice has been requested concerning the basis for computing the amount of transportation tax refundable by a carrier under the circumstances described below.

In the instant case, steel is purchased by a company for fabrication. The steel moves inbound from the steel mill consigned to the company's plant, for which movement the carrier charges a local rate. The steel is processed or fabricated by the company into joists, some of which are sold and consigned by it to a state. The charge made to the company by the carrier for the outbound movement to the state is based on the difference between the through rate from the point of origin of the steel to the point of destination of the joists and the local rate charged the company for the inbound movement of the steel to its plant. A fabrication in transit charge is also made by the carrier.

Pursuant to the exemption provided by section 4292 of the Internal Revenue Code of 1954 the charge made by the carrier for the outbound movement of the joists from the fabricating plant to the state is not subject to tax on transportation of property imposed by section 4271 of the Code. However, the inbound movement of the steel from the mill to the place where the fabrication occurs constitutes transportation to the fabricating plant, rather than transportation to the state, and is subject to the tax. See Rev. Rul. 57-223, C.B. 1957-1, 403. Although the inbound movement to the fabricating plant and the outbound movement from such plant are regarded by the carrier as a through movement for computing its charge for the outbound movement, they are in fact two separate and distinct transportation movements. Futhermore, since the fabrication in transit privilege is exercised before the outbound movement takes place and the transit charge is contingent upon both the inbound and outbound movements, such charge is not directly attributable to the outbound movement to the state. Therefore, the tax applies to the transit charge if it is paid to the carrier by a person other than the state, even though the transit charge (1) is set forth on the freight bill covering the outbound movement of the products consigned to the state and (2) is subsequently charged back to the state.

In cases where the movement of property to a transit point constitutes a taxable transportation, the tax is properly collectible by the carrier on the charges computed and paid at the local rate. However, when the property is subsequently shipped from the transit point and the through rate from origin to final destination applies, the charges computed at the through rate represent the amount actually paid for both the inbound and outbound movements of property regardless of the method of transit billing used.

As in the instant case, where the person who paid the transportation charges on the taxable inbound movement also pays the transportation charges on the exempt outbound movement, the carrier may prorate, on a mileage or other reasonable basis, the through charges to determine the proportionate part thereof which represents the amount paid for the inbound movement. The carrier may then make refund of the tax collected in excess of the tax due on the transit charge and on the proportionate part of the through charges properly allocable to the inbound movement, and he may take a credit on a subsequent return for the amount of tax so repaid. The following example illustrates such a proration on the mileage basis:

 Distance of inbound movement..........................   50 miles

If the carrier does not make a refund of the excess tax collected, the payer may file a claim for refund, Form 843, with his local District Director of Internal Revenue and attach thereto (1) the original receipts issued by the carrier covering the inbound and the outbound movements and (2) a statement showing (a) the adjustment of the transportation charges, if any, made by the carrier, (b) the official railroad mileage between the point of original and the transit point and between the transit point and the final destination, and (c) any other information as may be necessary for an allocation of the adjusted transportation charges between the inbound and outbound movements.